Consumer spending slows, but is `not collapsing'

Retail sales declined 0.3 per cent in January, and an early estimate points to little growth in February, Statistics Canada said on Friday.

January sales slipped to $67 billion, driven by a pullback in auto and auto parts sales, the first decrease in that subsection in five months, the agency said.

Statistics Canada estimates retail sales grew 0.1 per cent in February.

“Overall, today's data show that consumer spending is still struggling to grow in a higher interest rate world, but is not collapsing,” CIBC Capital Markets economist Andrew Grantham said in a note.

January's figure, the biggest drop since March 2023, still beat Statistics Canada's advance forecast for a 0.4 per cent loss, according to Bloomberg.

Aside from the 2.4 per cent fall in auto sales, there were more moderate declines in both food and beverage and clothing sales.

New car sales led with a three per cent decline, while sales at used car dealers and auto-parts retailers gained 4.5 per cent. This was offset by 7.4 per cent lower sales at other motor vehicle dealers.

The declines may partly reflect milder weather conditions this winter, which could moderate slightly in the months ahead, Grantham said.

Toronto-dominion Bank economist Maria Solovieva said the pullback in auto sales reflects a normalization after a year-end surge driven by strong incentives.

Olivia Cross, an economist at Capital Economics Ltd., in a note said high interest rates are weighing on vehicle sales to some extent, but the decline was probably related to the temporary weakness in motor vehicle manufacturing at the end of 2023. This suggests new vehicle sales will rebound later in the quarter, she said.

Core retail sales excluding gas stations and autos rose 0.4 per cent and sales volumes were up 0.2 per cent, marking the second consecutive monthly increase, Statistics Canada said.

Solovieva said stronger-than-expected core retail sales point to solid momentum in spending, with TD'S internal data indicating a slight acceleration in February on the back of services spending.